Business Leadership South Africa (BLSA) is calling on the SA Revenue Service (SARS) to immediately reinstate specialised units to clamp down on illegal cigarette sales.
The illicit cigarette trade is costing the economy R7 billion a year in lost tax revenue, which is 14% of the R50 billion shortfall that SARS recorded over the past financial year.
According to a study released by the Tobacco Institute of Southern Africa (TISA), illegal cigarettes costing as little as R5 per pack are now available for sale in more than 100 000 shops across South Africa.
The study, conducted by IPSOS, also shows that more than one third of cigarettes in ‘non-organised’ shops, which account for almost 80% of all tobacco sales, are being sold for well below the government’s R17.85 minimum in tax payable, suggesting no tax is paid on them.
Critically, R17.85 excludes any input cost thus this an absolute minimum amount.
“This is a clear evidence that the R50 billion revenue shortfall was not the result of only the economic slowdown as has been suggested, but a man-made gap created by lack of enforcement resulting from the corrupt decision to stop investigations and inspections of, amongst others, cigarette factories – a statement made in testimony given at the Nugent Commission this past week,” says BLSA CEO Bonang Mohale.
The Nugent Commission on SARS was appointed by President Cyril Ramaphosa to investigate governance and tax administration concerns at SARS.
The study also found that those companies operating within the legal framework are only operating at 60% of their capacity.
This is likely to have a negative impact on the existing jobs, investment and job creation potential in the agro processing value chain where between 8000 and 10 000 jobs are under threat and most from small farmers.
BLSA says Finance Minister Nhlanhla Nene must follow through with his announcement earlier this week to reinstate divisions that were collapsed under suspended SARS commissioner Tom Moyane’s watch that include the inspections and investigations of cigarette factories.
“This year, for the first time, in our 24-year democracy, government raised the level of Value Added Tax as part of a desperate move to plug the revenue shortfall. The IPSOS study has shown that the revenue shortfall was worsened by illicit cigarette trade.”
“Minimally, Minister Nene should reinstate these inspections as part of measures to restore tax morality and confidence in SARS – once a reputable world class public institution. The disciplinary inquiry against Mr Moyane should also proceed without further delay. SARS is too important an institution to be leaderless for an indefinite period,” said Mohale.
Earlier this year, BLSA pledged to work with government in restoring the public’s confidence in state agencies including SARS.
Mohale says the report also highlights the need to strengthen all parts of law enforcement including crime intelligence and the investigating and prosecution capacity of the Hawks and the National Prosecuting Authority (NPA) in order to combat organised criminal syndicates.
